His tweets are making Elon Musk money, but they are also costing him the odd upset. It is a somewhat problematic relationship that the CEO of Tesla has with the social network, and not only because of his tone outputs, which also has them. However, there is a tweet from 2018 that cost Elon Musk 40 million, him 20 million and another 20 to Tesla for a fine imposed by the SEC (the US securities regulator).
At tweet in question, which can still be read, the CEO of Tesla recounted his intentions to buy back Tesla shares to make the company private again, an idea that he rejected 17 days later. The SEC considered that Tweet, in which Elon was targeting a certain price of the share to carry out the operation, constituted a securities fraud by the and Tesla and Musk agreed to pay 20 million dollars each to resolve the lawsuit.
However, that tweet has had a bigger consequence than the SEC’s accusation of fraud. JPMorgan Chase & Co has sued Tesla for breach of contract and asks compensation of $ 162.2 million, plus interest and attorney’s fees and expenses.
The same tweet that cost Elon Musk and Tesla 20 million is again a dispute
The lawsuit stems from an alleged breach of contract in which according to JPMorgan, Tesla has breached the terms of a warrant on shares that the investment bank and the manufacturer signed in the past when Tesla was building its gigafactory.
In the deal, Tesla promised to deliver shares or cash if the price of its Tesla shares exceeded the expiring strike price. The strike or exercise price It is a price set by the parties through the purchase or sale options contract by which both parties agree to deliver the underlying (in this case shares) regardless of the exchange rate or spot price, that is to say, that of the market, at the time of maturity.
Both companies set a strike of $ 560. If the warrants matured and the spot price of Tesla shares was less than that strike, neither party owed the other anything. However, if the price of Tesla shares was higher than the expiring strike, Tesla had to deliver the fixed shares or their cash value at the difference between the prices.
The problem is that Elon Musk’s famous tweet from 2018 affected the price of the shares, and JP Morgan applied adjustments to the value of the warrants it had in its portfolio. Both parties have not been agreeing with the changes applied. While JPMorgan claimed that it had the right to make adjustments in value due to price volatility, Tesla considered that such adjustments were unreasonably quick and represented “an opportunistic attempt to take advantage of changes in the volatility of Tesla shares. “
Tesla disagreed with JPMorgan’s adjustments
The bottom line is that in the agreement, JPMorgan also included protection mechanisms to reduce your exposure and the risk of the operation. Between them, he reserved the right to hedge against large announcements that could trigger volatility and the price of Telsa’s shares, so that, if it happened, both parties could re-fix a strike price.
When Elon posted the tweet, Tesla’s stock price went into a downward spiral, and JPMorgan changed the strike value to $ 424 and notified the company, but the matter came to nothing on Tesla’s part, according to the lawsuit filed by the investment bank. Again, when Elon scrapped the idea of taking Tesla private, JPMorgan again adjusted the strike price. And again at $ 96.87 in August 2020 for the Tesla split.
At the end, and at maturity, the value of Tesla shares far exceeded the strike value, and therefore the company had a debtor position with JPMorgan, and when the latter notified Tesla to collect, the manufacturer limited itself to “renew their objections to the Adjustments on the strike, “as quoted by JPMorgan in the lawsuit.
Again, Elon’s fateful tweet may cost Tesla another 160 million. The complete lawsuit, filed in New York court can read in full here, including the list of changes that JPMorgan applied to the value of the shares at different times.